Bubble Bobble was a great game! Nearly as much fun as watching the Bitcoin Bubble predictions.

What the heck is a Bubble?

A bubble is an object that has a large volume/surface area with little intrinsic substance. Bubbles can get bigger and bigger…and then they pop.

An economic bubble is trade in an asset at a price or price range that exceeds the asset’s intrinsic value. What the fuck is intrinsic value? Well, that’s where things continue to get murky (and subjective). One uses fundamental analysis or technical analysis to determine intrinsic value. Some “experts” use top-down analysis (what does the industry look like, what are the macroeconomic factors). Others use bottom-up analysis (what are the specifics of the company).

Here’s the thing. There is no consensus on what the intrinsic value of an asset is. Like market analysis, it’s in the eye of the beholder. Some claim Bitcoin’s intrinsic value is zero but why? With no precedent, there is no reasonable way to determine Bitcoin’s intrinsic value.

Bubbles of the Past, Not That Scary

Tulip Mania was not the tulip bulbs but Future Contracts on tulip bulbs. Two quotes from the Wikipedia article sum it up for me

“In many ways, the tulip mania was more of a hitherto unknown socio-economic phenomenon than a significant economic crisis”

“Many modern scholars feel that the mania was not as extraordinary as Mackay described and argue that not enough price data are available to prove that a tulip bulb bubble actually occurred”

One of the most famous bubbles may not have been a bubble at all.

The Dot-Com Bubble is a modern bubble many of us lived through. I have a different lesson learned than the masses. It’s not that the market was wrong during the Dot-Com bubble, but it was ahead of its time. The NASDAQ peaked at ~5,100 in February of 2000. It recovered in 2015, fifteen years later and is now ~50% higher than its bubble peak (~7,500). There was a bubble but the market recovered with time.

Bubble recovery

The Housing bubble of 2006-2007 took an even shorter time to recover. By 2016, the average US house price was back to the 2006 levels.

Housing Prices

Argument for a Bitcoin Bubble

1,100% price increase since last year

Price increase does not appear to be in step with utilization (hard to say for sure)

Adding “Blockchain” to a company’s name or companies launching their own cryptocurrency (see Kodak) are having a (irrational?) run up in their stock price

People can buy Bitcoin on credit through exchanges like Coinbase

As far as I can tell, all arguments that Bitcoin is a bubble boil down to the fact that its increased in price “too fast”.

Argument Against a Bitcoin Bubble

Bitcoin is special. It’s not a company that can run out of money. It’s not a real-estate market that the government and banks affect. Any comparisons to previous bubbles fall flat due to the uniqueness of Bitcoin

Bitcoin is being used as a value-store. The government cannot manipulate Bitcoin through printing more currency (like gold). Gold’s current market cap is $7.8 trillion. Bitcoin’s market cap is under $200 million. That market for a value store is massive.

Network effects. The more people who have cryptocurrency the more (intrinsically) valuable it is. The enthusiasm around Bitcoin and its price run up has created momentum. More people have Bitcoin than ever. Products, like wallets, exchanges, payment systems and more have been built around Bitcoin. BTC is the default cryptocurrency used to by other cryptocurrencies. Despite is volatility compared to USD, Bitcoin is considered the “safest” cryptocurrency and many flock to it at times of uncertainty.

Macro trends. The world continues to become more connected and more digital. A government controlled fiat currency is not attractive to those in the developing world. A future with separation of Money and State, like the separation of Church and State before it, may be the way to go.

Predicting a Bubble

Like timing the market, predicting a bubble is tough work. Real estate has been around for thousands of years yet most missed the “Big Short” opportunity. The stock market went through the 1929 crash yet the Dot-Com bubble still occurred.

Recently many bears predicted a Venture Capital bubble yet that market continues to be robust. Others have been predicting a US Stock Market bubble for a decade now yet that market continues to grow as well.

Despite having hundreds of years of history with stocks and real estate the “experts” have not been able to predict bubbles. These same experts believe they can predict a bubble in something that has no good precedent to compare it to.

Bottom Line

No one knows if Bitcoin is in a bubble or not and those who say they do are full of shit. Why do people want to claim a Bitcoin Bubble? Are they jealous of those Bitcoin Millionaires? Are they fearful of something they don’t understand? It’s one thing to be bearish on Bitcoin, it’s another to be adamant it’s a bubble.

Like many, I’ve become obsessed with Bitcoin and cryptocurrency. Sure, it’s fun to buy Bitcoin on Coinbase. Checking the price compulsively, the emotional ups and downs. I like that sort of thing but it’s not for everyone. Those who think that’s all Bitcoin has to offer are only looking on the surface. The more you learn about Bitcoin the harder it becomes denying the beauty.

The Origin Story

Bitcoin’s beauty starts with its origin. Satoshi Nakamoto is a pseudonym used by the creator(s) of Bitcoin. There are a couple of theories on who Satoshi could be but no smoking gun. Satoshi may have created this persona to protect the long-term viability of the network. A person or group of people with grand inspirations to change the world but not take the credit. Not as cool as being born to a virgin but that’s a cool birth ;). An origin of mystery.

The Design

Peer-to-peer network, cryptography, immutability, the distributed ledger aka the blockchain. Bitcoin uses these concepts to create a flat, decentralized network where every node is equal. Like the internet before it, this type of design pushes innovations to the edge of the network. This elegant design allows people to innovate as they please on the edges.

Growth

After Bitcoin’s birth on January 3rd, 2009 a handful of developers in the digital/crypto currency space downloaded the software. Over the next eight years, as critics ridiculed Bitcoin, the value appreciated to a market cap over $300b. At first, a group of passionate engineers and others improved Bitcoin, built applications around it and promoted the heck out of it. Since then, people in finance, economics, ecommerce and more have flocked to Bitcoin. They helped create an ecosystem that will allow Bitcoin to achieve its potential. People from online poker players, to long-bearded cryptographers, to the Wall Street bros all working to make Bitcoin a success is a thing of beauty.

The Skepticism

For every person involved in the Bitcoin community there has to be 10 who are skeptical. These people believe Bitcoin is a Ponzi scheme or a scam. At the very least they believe Bitcoin is in a bubble.

In 2017, I like to use Bitcoin as a Rorschach test. Among the reasons for the skepticism there are common themes that emerge. Some are fun conversations about what is money, what qualities do a currency need to succeed, what is good or bad about our current banking system. Many times Bitcoin skepticism comes from a place of fear. A fear of the complexity of Bitcoin. The fear of change.

Bubble speculation is all the rage. Everyone is a woke investor, cautious to avoid the mistakes of the past. But spotting a bubble is tough and if this is a bubble, it’s not like one we’ve ever seen before.

Fearful when others are greedy and greedy when others are fearful.

The current situation reminds me of this quote attributed to Warren Buffet. How do we interpret this advice with Bitcoin? As many “greedy” types I’ve met bullish about Bitcoin I’ve met many more fearful types. Despite the big run up, it may still be time to be greedy.

The Bottom Line

It’s fair to be skeptical of the price of Bitcoin. It’s fair to think Bitcoin may not be the cryptocurrency to survive. But do not let the newness, complexity and others’ exuberance shroud your ability to appreciate its beauty. Cryptocurrency is here to stay. It’s changing the world and we’re all going to have to change with it. Enjoy it.

After two defiant quarterly result calls, sticking to the plan, Q3’s call was different. Evan, for the first time since Snap went public, acknowledged it was time for drastic changes. Achieving user growth by a UI Redesign, a new Android app and modifying the feed are all in the works.

Some want to take the course change as a sign that Evan doesn’t know what he’s doing. That Snap has grown beyond Evan’s abilities. I’m taking the other take. This shows Evan isn’t stubborn and changes when the time calls for it.

I have concerns that Evan is buckling to pressure. Is Evan worried about appeasing Wall Street in the short term? Has he seen enough data to come to his own conclusion about Snap’s growth potential? That’s the question.

Data Crunching

At 178mm users using Snapchat over 30 minutes a day, Snap is a wildly popular product. But with a $15b market cap, Snap needs more than 178mm users to eventually hit a reasonable P/E.

Snap Modeling

Snap’s main financial levers are DAUs, ARPU, Cost of Revenue and Operating Expenses. DAU x ARPU gives us total revenue. Snap must increase DAU and ARPU at a rate higher than Cost of Revenue and Operating Expenses to become profitable. In the model above I’ve assumed a DAU q/q growth at 3%, ARPU growth at 15% while maintaining a 3% growth on Cost of Revenue and a 2% growth on Operating Expenses. That gives Snap healthy cash flow by the end of 2019 but its path to get there is uncertain and is not quick enough for Wall Street to tolerate.

There are chances Snap can hit profitability with modest user growth if Snap is able to greatly increase ARPU. With another large investment from Tencent, parent company of WeChat, Snap has access to a wealth of Tencent experience to help further monetize their base.

The Changes

Evan has stated Snap’s priorities in 2017 have been performance, quality, and automation. Android performance has improved but not as much as Snap was hoping for. On the quality front, Snap has invested in a device testing lab that should bear fruit in the future. On an Automation front, Snap has made huge strides moving its ad business to self-serve. For a company going public with the need to automate, these three priorities made sense for 2017.

The three new priorities for 2018 are user growth, content, and augmented reality. As seen above, unless there is out sized ARPU growth, more user growth is necessary to hit profitability.

User Growth

Redesigning the UI

Last month I defended Snapchat’s UX, pointing out that an intuitive UI is not the be all end all. I stand by the post but understand why Evan and Snap may have to migrate to a more intuitive UI. Snap continues to kill it in the 18-34 age group but has room to grow with other demographics. Evan seemed to wanted to stick with what got Snap this far and not dumb down the UI but the user growth stagnation seems to have changed his mind. This move is risky, how many current users will be alienated and defect?

Facebook and the algorithmic newsfeed, Twitter with an algorithmic newsfeed (and 280 characters). Keep in mind many before Snap have made drastic changes to the core UX and continued to grow.

Android app

The Android fragmentation is giving a company like Snap a run for their money. Snap likes to push the envelope with what a mobile device can do with Snapchat and this strategy has many risks. A rewrite is a costly, risky but with global domination in mind, having a rock solid android app is Snap’s only hope. This bet reminds me of Facebook’s first mobile stumble when they bet too much on HTML5 and had to rewrite their app with more native components. Although risky, this move at this stage appears to be the only hope.

The Feed

Evan wasn’t specific about the changes to come but what he did say showed an astute understanding of Snap’s users.

I think there’s a really exciting opportunity here for another evolution of that content feed that addresses some of the shortcomings of the friend-based content feed model.

So, for example, in a friend-based content feed, in order to get more content in that feed, you need more friends. When people start adding more friends, they then feel less comfortable posting content and so they start posting less. That means that you need even more friends to get more content. So you end up in this kind of precarious situation where because you base the content feed on what friends are posting, you sort of are inherently limited in how you grow that selection of content. Ultimately, what we found is that the best predictor of what people are interested in and want to watch is actually what they’re watching. I think there’s an opportunity here for us to create a really great personalized content service that doesn’t at all diminish the great and, I think, very differentiated communications business that we’ve established.

I’m a big fan of companies having a unique identity and Evan highlights a unique position Snap has with its users. Snap continues to be a place where friends share themselves more authentically with others than on Instagram or Facebook. This is why some will gravitate to Snap even if Instagram had the some features. How can Snapchat grow its user base and engagement while avoiding the “posting less” phenomena? I can’t wait to see what Evan has up his sleeve.

The Bottom line

Snap has not concentrated on “User Growth” as a priority in 2017. Snap is no longer growing the user base at a rapid pace organically and its long-term business prospects do not look as high as they once did. Does this mean Snap is done for? No, not in the slightest. Snap has made user growth a priority, identified areas which has impeded user growth and is actively working to improve these areas. Evan has evolved Snap before and will do it again.

I attended a Product School talk this week where Snapchat’s UX was hot topic of discussion. The consensus in the room was that Snapchat’s UX is abysmal. Snapchat is succeeding despite its UX. I couldn’t disagree more!

The Criticism

There’s a bunch of hate on the Snapchat UX. First, when you sign up, the app opens to the camera with no tutorial. Unlike Facebook or Twitter, who will onboard users by adding their friends and showing them content, Snap says “make something!”. As with everything, there is a trade off. Snapchat may be harder to figure out but it sets the tone with that first experience. Snapchat isn’t for the lurkers, it’s for the creators.

The biggest criticism is that Snapchat is confusing. Snap Map is hidden behind a not-so-obvious two finger swipe on the camera. Activating lenses requires a user to press and hold on a face. You can swipe in any direction, pinch on any screen and other “violations” of UX Best Practices.

Something as mundane as having chat on the same side has irritated UX purists.

VS

The Coolness

I remember the moment Snapchat’s je ne sais quoi clicked for me. I was at a work Happy Hour and taking a Snap when a co-worker asked to add me. As I told her my snapchat name she looked at me like I had two heads. Instead she took my phone, went to my profile and took a picture of my Snapcode. Like magic it knew who I was and added me as her friend. All I could say was “whoa”.

That was the first but not the last time I was wowed by a friend showing me a feature on Snapchat. Adding “Friends Near by”, accessing filters and accessing Snap Map were all in-person wow moments. Not only that, but I was able to wow friends by sharing the same UI tricks I learned. It’s fun when you learn it and fun when you teach it.

Josh from Greylock coined the term “Shareable UI”

Shareable design understands this deeply social nature of how humans learn, and capitalizes on people’s desires to learn and to teach.
Snapchat does this brilliantly, because each of those seemingly obscure features is an opportunity for its users to show their friends how to do something cool. Showing your friends something cool can increase your social standing, or maybe it just gives you a good feeling. Either way it’s something you want to do! And for Snapchat, that’s great, because it’s converting you into an evangelist for its product, and you don’t even feel like you’re evangelizing: You’re just showing your friends how to do something neat.

Fun over Function

Of the users who did enjoy Snapchat and wanted to keep using it, the primary reason was because they found it fun. Users who said they would keep using the app were more likely to describe it as “popular,” “fun,” and “cool.” None of the users described the app using words like “useful” or “helpful.” They simply didn’t see the app as a solution for a need.

Conventional wisdom says Interfaces “have” to be intuitive. Apps/products “have” to be a solution for a need. Snapchat shows this isn’t always the case. Perhaps like Seinfeld, Snapchat is an app about “nothing”.

Bottom Line

Snapchat’s interface is not conventional. The UX is not intuitive. These alone don’t make a UX good or bad. Although not intuitive, the Snapchat UX is highly shareable. It’s fun to teach others the secrets you know. The UI may not be conventional but it makes up for it with surprising delight.

Critics are pressed for Snap to follow an established playbook. Follow standard UX guidelines, modify the product to appeal to everyone, do more growth hacking, make the stories feed algorithmic, etc. Snap’s ability to break convention and blaze their own path is what I love about em.

Apple kicked off the September Special Event with a an opening statement from Steve Jobs.

There’s lots of ways to be as a person. And some people express their deep appreciation in different ways. But one of the ways that I believe people express their appreciation to the rest of humanity is to make something wonderful and put it out there. And you never meet the people, you never shake their hands, you never hear their story or tell yours, but somehow, in the act of making something with a great deal of care and love, something is transmitted there. And it’s a way of expressing to the rest of our species our deep appreciation. So we need to be true to who we are, and remember what’s really important to us. That’s what is going to keep Apple Apple, if we keep us us.

The Steve Jobs story is a rich one with many twists and turns. I love the fact that something as grandiose as Apple Park is the last pillar of his gigantic legacy.

The Pros – What I Liked

The most telling part is the lack of criticism coming out of this Special Event. Nothing of the size of furor created over the headjack removal at the last iPhone event anyway. It’s hard to walk away from that event and claim we’ve reached Peak Apple or that Apple can’t innovate.

Watch

Apple Watch is a huge success. In late 2006, Palm’s chief executive Ed Colligan quipped “PC guys are not going to just figure this out. They’re not going to just walk in [and take over the smartphone industry].” Poor Ed was a little off on that one and those who thought Watch was a flop were off as well. Apple is now the largest (by revenue) Watch maker in the world. How crazy is that?

I can’t wait to go for a run with only my watch (and without my phone). This will be a big win for me. It’s a bummer Verizon is going to get another $10 / month out of me but it’s worth it.

iPhone X

As a consumer, I’m excited. It looks like it’s time to for me to size up my phone. RIP 4.7″ diagonal. I hope this bad boy fits in my jeans.

As an investor, I’m amped. The iPhone X will increase the average price without decreasing the amount of iPhones sold (since more price conscious buyers may opt for the iPhone 8).

The Cons – My Concerns

No Surprise

Apple’s ability to keep a secret seems to be slipping these days. This event would have been more impactful if the iPhone X was a complete surprise. Can Apple shore up their supply chain and software releases? Can Apple get back to their secret-keeping ways?

Will FaceID work well?

Demo fails happen and I’m not putting much into the FaceID fail we saw during the event. Would Apple push FaceID out if it wasn’t objectively better than TouchID? Is the edge to edge screen an important enough trade off for an inferior way to unlock your phone? I’m going to trust Apple for now and assume FaceID will be a step forward. This is the most controversial and criticized thing about the Special Event. Like many things (antennaGate, removal of the headphone jack, the iPad name) I expect these concerns will go unfounded.

Expanding Choices

While I’m feeling nostalgic, let’s quote Steve Jobs again

“People think focus means saying yes to the thing you’ve got to focus on. But that’s not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully. I’m actually as proud of the things we haven’t done as the things I have done. Innovation is saying ‘no’ to 1,000 things.”

When Steve Jobs took over the reins he cut the product line down to two consumer desktops and portables and two pro desktops and portables. Since then the product lines at Apple have slowly grew. What the sweet spot here is debatable and ever changing. I don’t think Apple has went overboard but they are beginning to stretch themselves thin. The bigger problem is the paradox of choice. Having the average consumer decide between eight different iPhones is risky. I’m baffled that they didn’t sunset the iPhone 6 series at the very least.

iPhone X

WTF is up with that notch? Seems like something Jobs would have hated and something I expect Jony Ive to keep on the cutting room floor. I don’t want to jump the gun here and judge before it’s in my hands but this is a compromise, it’s not the ideal design.

I don’t understand the branding choice. I could have got behind iPhone X pronounced “ex” but calling it an iPhone 10 seems odd. What happened to 9? That comes next year?

From a business perspective, where does Apple go from here? Do they continue to offer an iPhone X-esque device going forward? If not, I expect a short-term surge in revenue this year from iPhone 7 users upgrading early to get their hands on the iPhone X but that comes at the expense of revenue next year. For buy-and-hold types, this isn’t an issue, but it may cause the stock to perform like it did after the iPhone 6 and 6s launch (and the year after).

Bottom Line

My Apple spending budget is bursting at its seams. I’m going to buy the new Apple Watch, the iPhone X and the Homepod. But what can I do? Apple continues to bring the goods.

Snap has released their Q2 results. If you trust the pundits, it was “another failure on a long, downward path for the social media company.” Impatient journalists and those on Wall Street seeking the quick buck aren’t happy. The buy-and-hold types have a lot to be happy about.

The Good News

Daily Active Users grew 21% year-over-year from 143 million in Q2 2016 to 173 million in Q2 2017. An increase of 30.5 million users. For the quarter, DAUs was up 4.2%, adding 7.3 million users.

Average Revenue Per User grew 109% year-over year from $0.50 to $1.05. ARPU increased 16% over Q1 2017 when ARPU was $0.90.

Total revenue grew 153% year-over-year and up 21% from $149.6 million in Q1 revenue to $181.6 million.

Snap is growing in every way an investor would like (although not at the pace the greedy would like to see). The real story is the product evolution. Snap released 16 versions of Snapchat in Q2 compared to Facebook’s 6 releases. Not only is Snap moving fast with quick releases but some of the releases had massive features. Snap Map, a way to see where your friends are and what is going on at specific locations, was released in Q2 and well received. There has been much written about Snap being copied but Snap moves too fast. You can’t copy their soul.

Misunderstood – $FB vs $SNAP 166 Days Post-IPO

Snap isn’t the only tech company that was underwater 166 days after their IPO (the day of this writing). $FB IPO’d at $38 and closed down 42% from the IPO price at $22. $SNAP IPO’d at $17 and closed down 23% from the IPO price at $13. The $SNAP doomsayers emphasize the risk of losing top talent when the stock temporarily underperforms. $FB was able to weather a tougher storm than $SNAP is going through. If an employee is swayed to leave by short-term stock swings they are not buying into Snap’s potential like they should. They don’t get it, just like a lot of those on the Street.

After Facebook’s first two earnings reports the Street continued to be concerned about mobile monetization. Facebook had just started their mobile monetization efforts and the rewards were inevitable. This is similar with Snap. Some want revenue to grow quicker than it is but Snap just started to monetize. This will take time.

Analysts continue to speculate on User Growth, Revenue and Profit/Loss despite lack of guidance from Snap. Snap will “miss” these numbers and the market will respond (in the short-term). This is because Wall Street doesn’t understand Snap’s User Growth will not be like Facebook’s. Snap is for the savvy, smartphone owning, high speed bandwidth users. Facebook, with web apps, mobile apps on every platform, “Facebook Lite” etc, is for everyone. Snap is unlikely to have the 1.35 billion DAUS that FB has anytime in the next decade. Snap won’t dominate the masses but it will dominate the critical 18-35 demographic for sometime.

Bottom Line

Facebook is where the puck is. Snap is where the puck is going. User Growth for Snap will continue to feel the headwinds until the rest of the world catches up with high speed bandwidth. Snap would have to compromise the product too much to appeal to the emerging markets and it’s not worth their time in the long-run. Snap’s play is to continue to evolve the most modern social media app for the young and savvy. Continue to take advantage of the latest and greatest in tech and monetize those savvy users with deep pockets.

Snap’s market cap is currently ~$16 billion. Napkin math says Snap would need to get to 200mm DAUs at $20 annual ARPU for yearly revenue of $4billion and profit margin of 25% to justify that valuation (that would be a PE of 16). Despite being 5X away from that ARPU number, those seem like a layup for Snap. Someday we’ll look back at the market’s response to these early earnings reports and laugh, just like we do with Facebook now.

I love it when a company has a specific CompanyIdentity. Some of my favorites are losing their focus. Google wanted to make robots for a while. Amazon wants to be a grocer. Instead of being in touch with where they excel these companies believe they can do it all. Instead of focusing on where they are best positioned to win, they go after where they WANT to win.

In March of 2016, Twitter made a change. They followed the pack. Like Facebook before them, Twitter modified their newsfeed from real-time to algorithmic. Twitter enthusiasts thought it was the end of Twitter. The #RIPTwitter hashtag was popular but exaggerated the situation. Twitter’s user base did not revolt and growth has not been what Wall Street hopes for but exists. But, they lost their identity that day. Instead of becoming the go-to spot for what’s happening now, Twitter became yet-another-social-network.

Twitter’s mission

Our mission: To give everyone the power to create and share ideas and information instantly, without barriers.

Twitter’s statement gives direction and focus the company can march behind. “Instantly” is the key word. Empowering people to create is a crowded field – Facebook, Snap, Instagram. All these companies allow people to create and share ideas. But Twitter is the place for Breaking News, not Snap or Facebook. Twitter’s use of the hashtag allowed people to consume and share information about a real event. Most recently, Twitter’s Periscope brought live streaming to the masses in a way we haven’t seen before.

Twitter continues to make strides into real-time entertainment but not at the commitment that can make it their identity. For example, last year Twitter streamed Thursday Night Football games. Unfortunately they were outbid by Amazon this year for the deal. This loss indicates that Twitter isn’t as committed to the strategy as they could be.

Twitter can evolve to be the go-to place for real-time entertainment. I like the following strategy –

Keep the algorithmic feed but make it easy to access a real-time Timeline. Make ways to discover what is going on now (local, globally, etc) front and center.

Continue to build and push Live video streaming with Periscope.

Strike new deals to create a real-time only streaming package of high-quality content. A DirectTV Now or Sling type package but limit it to Live Shows. This would include Sports, News, Morning Shows and Award Shows. Never show a replay, only show live content with this package. Curate the best live content the world has to offer.

Create a live audio-only streaming service. Reach out to successful podcasters to broadcast their shows live. Reach out to successful “terrestrial” radio personalities and let them broadcast their shows to a global audience.,

By taking these steps, Twitter can have a specific identify for itself and customers. If Breaking News is happening, you want to go to Twitter to see what CNN News, Fox News and everyone on Twitter (the core service) have to say about it. If a live game is going on, Twitter is where you go to see the game, what people are saying about and people’s reactions on Periscope.

What’s doubly sweet about this strategy is how well Live TV lends itself to advertising. Sports advertising in particular has soared in recent years. You can’t fast forward Live TV and the performers (whether a newscaster, radio host or athlete) need breaks. Users are engaged because the length of the commercial break is less predictable than with a taped show.

EveryonelovesAmazon buying Whole Foods. Some so bullish they worry Amazon is now too powerful. Why aren’t pundits questioning a tech company buying a 36 year old grocer for $13.7 billion? Why is this deal a sure thing to so many?

The Numbers

Revenue and profit of Whole Foods

Whole Foods is healthy but stagnant. 2016 revenue came in at $15.7B and $507mm of income. This income is lower than the two previous years. Sales have declined in six straight quarters. Whole Foods closed nine stores in February. At $500mm of income a year, Amazon is 27 years away from recouping the $13b spent. Of course this isn’t Amazon’s plan. Amazon believes they can modernize Whole Foods, improve logistics and empower online purchasing. Using the 462 Whole Foods locations for Amazon’s needs is the icing on the cake.

Competitive Advantage, Company Mission and Identity

Google & Motorola. Microsoft & Nokia. AOL & Time Warner. These are the disasters that come to mind when you think of a tech company acquiring an older company. In each example the tech company attempted to enter a space that was not part of their core competency.

Amazon has had an amazing run. Amazon has shown they can sell online better than anyone. Ecommerce at scale is Amazon’s core competency. Along the way to becoming the largest ecommerce company in the world Amazon had to learn how to create software at scale efficiently. AWS was born from this and Amazon developed a new core competency. AWS has been a massive success, generating $12.2B in revenue with a 31% profit margin in 2016. But Amazon has become drunk with success. AWS has lead Amazon to believe they can do everything. Core competencies be damned.

Amazon’s Former Vision –

Our vision is to be earth’s most customer centric company; to build a place where people can come to find and discover anything they might want to buy online.

Amazon use to have an identity. Amazon sold shit online and wanted to sell anything you could imagine online. This vision was edited to “Our vision is to be earth’s most customer centric company” which is broad and meaningless. It would have been a lot harder to justify a brick-and-mortar purchase with the old vision statement.

Midas Touch?

Some only remember the hits – Amazon.com, AWS, Kindle and Alexa but there have been failures as well. A $170mm write down on the Fire Phone. A $175mm loss on a LivingSocial investment. Failed attempts at payments (WebPay), auctions (Amazon Auction) and Q&A (AskVille). Not everything Amazon touches turns to gold.

Why Whole Foods?

I don’t love Amazon buying a brick-and-mortar store but the $5tn market size of the food retail industry is attractive for Amazon. Is Whole Foods the best fit? Whole Foods is known for their high-end, expensive food and stores. Amazon is known for their low prices. Do the customers of Whole Foods want lower prices? Sounds silly but some believe the high prices at Whole Foods keep the riff raff (like me) out and make the store more desirable to their core customer.

There are two grocers who seem like a better fit. Trader Joe’s, with their 461 stores in 41 states and low price model. Kroger, with ~2700 locations in 31 states and a $20b market cap also seems like a better fit. I’d love to know what other options Amazon considered and why they settled on Whole Foods.

Stretching Thin

Ben Thompson believes Amazon’s goal is to take a cut of all economic activity. Is that feasible? Is Amazon getting too big for their britches?

Ben Thompson –

I said at the beginning that Mackey mis-understood Amazon’s goals, strategies, and tactics, and while that is true, the bigger error was in misunderstanding Amazon itself: unlike Whole Foods Amazon has no desire to be a grocer, and contrary to conventional wisdom the company is not even a retailer. At its core Amazon is a services provider enabled — and protected — by scale.

Indeed, to the extent Waterloo is a valid analogy, Amazon is much more akin to the British Empire, and there is now one less obstacle to sitting astride all aspects of the economy.

In Ben’s bullish post he compares Amazon to the British Empire. Does Ben remember the British Empire’s fate? In the British Empire’s attempt to control all economic activity they stretched themselves too thin. The colonies and territories under their thumb revolted.

Can this happen to Amazon? Will Amazon’s ambitions cause customers to revolt? For example, if Amazon Video becomes more of a threat to Netflix will Netflix move away from AWS instead of feeding their competition?

Bottom Line

Keep in mind 70%-90% of M&A deals fail. Amazon’s purchase of Whole Foods is far from a no-brainer. This deal is a risky $13b bet with tremendous upside. Can Amazon utilize Whole Foods to improve what Amazon does best – allowing people to buy stuff online? Or will the Whole Foods deal become an expensive lesson on focusing and staying humble?

Snap’s first earnings as a public company are in and there is a consensus! Snap’s first earnings are terrible and the company is a disaster. Or is it? Do we care about the opinions on Wall Street trying to earn a quick buck? Or click-bait journalists looking for impressions? Those investing in $SNAP must have patience, and if you do, there is a lot to be happy about in this earnings report.

Snap missed DAU and Growth Numbers!

What did Snap miss? Expectations set by bozos on Wall Street? Evan and the leadership team didn’t set guidance on revenue or DAU growth. Analysts on Wall Street made numbers up based on little precedent. Snap didn’t miss a thing.

Snap’s user base grew 36% yoy to 166 million. Quarter over quarter, Snap grew 5%. This is consistent with quarter-over-quarter growth from Q3 to Q4. Instagram Stories may have slowed down growth but Snap is growing at a healthy pace.

Snap missed Earnings with a whopping $2.2 billion loss!

Again, this is Wall Street expectations. $2 billion of the $2.2 billion loss was due to a one-time impact of stock compensation. I’m much more concerned with ongoing costs.

The flip side is Snap grew revenue yoy 286%. ARPU tripled yoy to 90 cents per user globally. North America monetization is at $1.81 a user and they’ve only scratched the surface. For comparison, Facebook is approaching $20 in ARPU. It’s encouraging to know there may be a long ways to go before we see a slowdown in ARPU growth with Snap.

Evan is selfish!

Another common theme is Evan is selfish. The $750mm bonus is evidence A. It’s quite the opposite in my book. Evan has turned down offers to sell Snap and could have been a billionaire years ago. Instead, Evan has shown an ability to delay gratification and plan for the long-term. This is why investors of Snap should be patient. Others in Evan’s shoes may resort to growth hacks to appease Wall Street. Evan keeps the big picture in mind. Evan dismisses short term thinking that doom companies in the long run.

Bottom Line

Expecting ~10% DAU growth and profitability from Snap this quarter was unreasonable. Evan is playing the long game with Snap and part of that approach is not optimizing for the short term. Snap is a product company investing money into R&D to grow and monetize. Instagram may have copied the story format but Snap is more than that. Snap is a different context to its users. Snap will morph in ways we can’t imagine. You’ll need patience if you want to buy and hold $SNAP but with that patience will come great reward.

As part of my never ending quest to be a better product person, I’ve been making mockups. After taking a Learn Sketch course I was itching to apply what I learned to a real-world problem. As a Howard Stern fan I’ve found the Sirius iOS User Experience frustrating. I crave a less cluttered, easier-to-use app designed for hardcore Howard Stern fans like myself.

A Solo Howard Stern App

Supporting the hundreds of Sirius channels brings a lot of UI baggage. Making a dedicated Howard App allowed me to get rid of numerous pages and the bottom bar.

Sirius

With one focus, the Home screen can be simple and clean. Search is at the top of the screen, below you may browse. The UI brings attention to a Live show since no content is better than Live content.

My Mockup

The Sirius UI for downloaded shows is good but has room for improvement. The thin fonts and pale colors are difficult to read and there are many colors in use.

My mockup has two colors with only the most relevant information for easy reading.

The Player

The Sirius player takes up a lot of real estate for the background photo and title of the show.

I shrunk the the amount of space for a photo and considered removing it completely. That space would not be a static photo of the logo but would allow for a multi-media experience. Photos relevant to the segment, like a photo of a guest, would work great.

Navigating the Shows

The Sirius app allows a week’s worth of shows available for “On Demand” download for a limited time.

I envision access to the entire Howard Stern content library available for download. Another goal of this app is to expose new listeners to a taste of Howard Stern content. All content should have a degree of shareability. Allowing a user to share clips of a show via SoundCloud as they do now is a great start. Sharing Phony Phone Calls and Song Parodies are a perfect way to give people a taste of Howard.

Search

With access to 40 years of content the user must have a good Search to find what they are looking for. I’ve moved Search to be front and center in home. The results have labels with the most relevant information. It’ll be key to create a search based on machine learning that will improve overtime.

New Features

The Howard Stern Alarm Clock, Auto-downloading new shows and playing Sirius on an Amazon Echo are features I’d use everyday.

Inspiration for the Settings and Devices page came from Overcast and Spotify.

Note – I used Sketch to create the mockups. I choose Open Sans as the font and downloaded it from Google Fonts. The Twitter and Facebook icons are from IconMoon. I wrapped the designs with iPhone chrome using MockUPhone. I learned about these resources through an excellent designer, Julian Haddad, who I worked with at Social Tables.